The Empirical Research On Overconfidence Of Investors And Securities Price Fluctuations In China

The modern mainstream finance, based on the assumption of complete rationality, has established the security pricing theory on the foundation of Efficient Market Hypothesis (EMH) by means of general equilibrium analysis and no-arbitrage analysis. These theories contains: the modern portfolio theory, the capital asset pricing model (CAPM), arbitrage pricing model, the option pricing model. However, since the late 19th century, a variety of "abnormal" behavior of security price appeared frequently in financial markets which has given rise to the numerous questions about the Efficient Market Hypothesis(EMH), therefore the new finance theories which study security price behavior mechanism from the perspective of incomplete rationality or bounded rationality Among these theories, the Behavioral Finance , which study the security price by using the theories of psychology, is proved to be very capable to explain the abnormal phenomenon.In all previous studies of the effect of individual incomplete rational investors upon the stock price, scholars have paid most attention to the investor's psychology of overconfidence. The relative researches have also gone very deeply and thoroughly, which shows that there exactly exists overconfidence in stock market. So this paper aims to analyze the effect of incomplete rational behavior on the stock price from the angle of psychology of above mentioned overconfidence.Along two different paths of complete and incomplete rationality assumption, this paper has discussed the theoretical development of security price behaviors. To analyze this kind of effects ,in the one hand ,we constructed relevant Security Pricing Models in various market circumstances on the foundation of this irrational psychology.(e.g. overconfidence).On the other hand, we apply this Model to the real case .In the end ,three hypotheses has been suggested, moreover we continued to work on the empirical study to illustrate the effect of overconfidence on the fluctuation in stock price by dealing with the data of stock market and trading volume of securities.Based on Event Study Approach, we found that the stock price rose remarkably after announcement of the corporate earnings performance in the bull market, in contrast, the reaction to the announcement is not obvious relatively in the bear market. In terms of the empirical study on the transaction volume, the past stork market earnings is the Granger cause of the trading volume, and then we can draw the conclusion that the excessive trading volume generated by the overconfidence effective explained the fluctuation in the stock market earnings, it follows that overconfidence that cause the excessive trading volume has much more influence on the stock price fluctuation than any other factors.